Big Money In Movie Making?
This year's awards for successful financing of Hollywood films.
Wall Street and Hollywood have a ton in common -- they both deal in the unknowable and get paid as though they are omniscient. For every trader who lost a bonus over some disastrous subprime bond, there's a producer who will never work again because of an expensive flop like Funny People.
Sometimes finance and filmmaking get it right, however. And this year was one of their unlikeliest successes, with investors beleagered by the markets and studios struggling with budgets. Yet the biggest blockbusters -- films like Avatar, The Blind Side and The Hangover -- played to audiences hungry for recessionary relief. But what you don't see, even if you scan the credits, are the ties between Wall Street and Hollywood. Studios need financial help to keep making flashy films, and in the past five years a crop of investment firms have popped up to help them. While these firms are power players in Hollywood, they bypass the glare that the studios absorb. They are as secretive as hedge funds, which makes their successes as invisible as their failures.
But even without number-crunchers or tell-all studio spies, it's relatively easy to tell who's having a good turn. Here are some of the investing winners -- and losers -- from this year's movies.
1. Dune Entertainment
The firm signed a three-year, $500 million deal in 2007 to invest in all of Fox's films. Fox had the biggest blockbuster of this -- or any -- year: Avatar, which brought in nearly $700 million in receipts and may add more than $300 million to Fox's operating income. Dune and partner Ingenious Media funded up to 60 percent of the movie, the New York Times reported last year. The investment firms gained from Fox's desire to hedge its bets on the film, which could have been an expensive flop if the public showed no desire to see blue humanoids argue about imperialism. Dune scored another success in what turned out to be the year's ninth-biggest film: Fox's Alvin and the Chipmunks: The Squeakquel, which brought in $216 million.
Dune Entertainment's father is Steve Mnuchin, a former Goldman Sachs partner who co-founded the $2.5 billion New York hedge fund Dune Capital with some former Goldman colleagues. Mnuchin is now best known as the man who runs struggling lender IndyMac, but back in 2005 he expanded Dune into the film business -- a mystifying move at the time for a firm known best for its real-estate prowess.
2. Ingenious Media
Ingenious was Dune Entertainment's investment partner on Avatar and comes in a close second -- only because the London-based firm financed merely the one hit, whereas Dune also claims a Chipmunks victory.
Nine-year-old Ingenious is Europe's largest investor in media and entertainment, but it doesn't finance just movies, as Dune Entertainment does. Instead, Ingenious puts money into a range of businesses in media and entertainment, including an unfortunate losing bet on publisher Incisive Media. Avatar was a bit of a departure for Ingenious, which favors artier studio films like Girl With a Pearl Earring and Hotel Rwanda. Ingenious did make investments in Alien Vs. Predator and X-Men: The Last Stand, however, which may signal more money in action films. Of course, where there's money, there's trouble: Ingenious is also fighting a U.K. Treasury investigation into the firm's taxes.
3. Legendary Pictures
Warner Brothers struck gold this year with The Hangover, the sixth-highest-grossing film of 2009 with $277 million -- and the biggest comedy of all time. Legendary Pictures, headed by self-proclaimed geek Thomas Tull, helped finance the film, which wasn't expected to be a big hit. Legendary just had another smash, The Dark Knight, in 2008. That movie was the second-highest grossing of all time until Avatar bumped it into third place. Tull, who also owns part of the Pittsburgh Steelers, was the first in Hollywood to approach film financing like a hedge fund and draw money from Wall Street to fund Hollywood directly. In 2005, Tull launched Legendary with investments from at least six Wall Street players, including Banc of America Capital Investors and AIG Direct Investments. In 2005, Legendary struck a 25-film deal with Warner Bros. and then revised that in 2007 to include 45 films.
4. Summit Entertainment
Its big success this year was Twilight: New Moon, which earned $295 million (and countless squeals) in theaters alone.
Summit owes its existence to an elaborate $1 billion deal arranged by Merrill Lynch and several other banks. (The Wall Street Journal has a good explanation here.) Summit turned out a number of forgettable flops before Twilight reversed its fortunes.
Of course, some investments didn't work out so well at all. Let's not call them losers (it's always an honor just to be nominated), but some investors are going to have some hard nights. Here are two.
1. Relativity Media
Relativity has the dubious distinction of backing arguably the biggest flop of 2009: Universal Pictures' Land of the Lost, a Will Ferrell comedy with a $100 million budget that hasn't recouped anywhere near its production costs.
Relativity struck a generous co-financing deal with Universal in 2008, in which the investment firm agreed to finance about 75 percent of Universal's films through 2011. They extended that agreement to 2015, according to Nikki Finke.
Relativity is richly capitalized, however -- hedge fund Elliott Associates gave the firm $1 billion two years ago -- and has agreements with other studios, including Lionsgate. The firm also saw some success with its investment in Dear John, the film about an Iraq war veteran that cost $35 million to make and pulled in almost that much over its successful opening weekend.
2. Deutsche Bank
Deutsche Bank didn't lose, exactly. It just missed out. The bank was in talks with Paramount in 2008 to finance a three-year, 30-movie slate; but after the economic fallout the two couldn't agree about price and Deutsche Bank walked away. One of those movies, Transformers: Revenge of the Fallen, turned out to be the second-highest-grossing movie of the year with $402 million, behind Avatar. It's impossible to tell how the other 29 movies would have done, however.
While these Hollywood investment firms may want to win profits, they don't necessarily want the Oscars. Little blue men can make you a fortune but little gold men can lose you one -- because the costs of marketing the movie can often rise into the tens of millions if there's an Oscar campaign to consider. And that can bite into potential profits, as pointed out by entertainment lawyer John Burke of Akin, Gump, Strauss, Hauer & Feld. So there's another thing Wall Street and Hollywood have in common: Winning is only relative.
Source Site:
http://money.ca.msn.com/savings-debt/slate/article.aspx?cp-documentid=23600229&page=0
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DCF
3/9/2010
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